Study supports U.S. food aid ‘monetization’

Thursday, November 29, 2012

A study commissioned by the Alliance for Global Food Security, a coalition of 14 private voluntary organizations and cooperatives engaged in international food aid, found that “monetization” generates multiple benefits in the recipient country and by selling the commodity for a fair market value, as called for in the House Farm Bill, it is unlikely to disrupt commercial trade.
Food aid commodities may be distributed overseas or “monetized” – sold in a food-deficit country and the proceeds used to support development activities. About 85 percent of food aid commodities are distributed and the remainder is monetized. All distribution and monetization programs are planned in advance and must be approved by either the U.S. Agency for International Development or Department of Agriculture before they can take place.
The Informa Economics study of the “Value of Food Aid Monetization: Benefits, Risks and Best Practices” (http://foodaid.org/news/wp-content/uploads/2012/11/Informa-Economics-The-Value-of-Food-Aid-Monetization-Benefits-Risks-and-Best-Practices-November-28-2012.pdf) found that due to the practices used when designing and implementing the programs, monetization did not interfere with local production or displace commercial sales.
Instead, “Monetization can lead to benefits beyond those that would be created via direct program funding by addressing credit, hard currency, small volume, and other constraints to buying on the international market, thereby creating business opportunities and increasing the availability of the commodity in the recipient country,” the study found.
By providing the commodity through the marketing system of the recipient country produces a variety of benefits, which, according to Ellen Levinson, executive director of the Alliance for Global Food Security, “should be the leading reason for monetization. The bottom line from a policy perspective is that cost recovery does not measure the value of food aid monetization.
“Hopefully, this study will dispel the notion that food aid is somehow ‘inferior’ to providing cash directly to conduct programs,” she added. “At the most basic level, monetization has a double benefit in a food insecure country: it provides a commodity that is in short supply and generates funds to carry out programs that improve food security and economic development.
“What’s most revealing from the Informa study is that the design of a monetization program can also address market constraints, stimulate economic activity or improve the quality of the food supply,” she said.
The Alliance for Global Food Security supports the House Farm Bill monetization provisions. The bill clarifies that the sale of the commodity should be for the fair market value in the recipient country, which mitigates chances of displacing commercial trade. In addition, it requires identification of the benefits of monetization to the country where the sale takes place and calls for greater USDA and USAID coordination, since both agencies administer food aid programs.